An appraiser is extracting site value from the $850,000 sale of a furnished vacation home. Verification with the parties reveals that the price includes a $20,000 premium for below-market seller financing and $10,000 for the furnishings. The improvements contribute $540,000. What is the indicated site value?
Correct Answer
A) $280,000
Extraction starts from the cash-equivalent price of the real property: $850,000 − $20,000 − $10,000 = $820,000. Subtracting the improvement contribution leaves $820,000 − $540,000 = $280,000. Removing only the financing premium gives $290,000, removing only the furnishings gives $300,000, and removing neither gives $310,000.
Why This Is the Correct Answer
Option A is correct because the price is first reduced to the cash-equivalent amount paid for real property: $850,000 − $20,000 − $10,000 = $820,000. Subtracting the $540,000 improvement contribution leaves $280,000 for the land.
Why the Other Options Are Wrong
Option B: $290,000
Option B, $290,000, comes from $850,000 − $20,000 − $540,000. It removes the financing premium but leaves the $10,000 of furnishings in the land figure; the correct result is $820,000 − $540,000 = $280,000.
Option C: $300,000
Option C, $300,000, comes from $850,000 − $10,000 − $540,000. It removes the furnishings but leaves the $20,000 financing premium in the land figure; the correct result is $280,000.
Option D: $310,000
Option D, $310,000, comes from $850,000 − $540,000, using the reported price as if it were all real property at cash equivalent. Both adjustments are needed: $820,000 − $540,000 = $280,000.
Clean the Price First
Before subtracting improvements, take out what the buyer paid for anything other than real property at cash terms. Whatever stays in the price ends up in the land.
How to use: Use this check whenever a sale involves seller financing, furnishings or equipment.
Exam Tip
Read verification facts as part of the arithmetic. Details about financing or items conveyed with the sale usually change the figure you start from.
Common Mistakes to Avoid
- -Starting extraction from the reported price without verifying the terms
- -Adjusting for one non-real-estate item and overlooking the other
- -Adding the financing premium to the price instead of removing it
Concept Deep Dive
Analysis
The subtraction is easy once the starting figure is right. The skill is recognizing that a reported price can contain amounts paid for something other than the real property. Both the financing premium and the furnishings must come out before the improvements are subtracted.
Background Knowledge
Sale prices used as value evidence should reflect cash-equivalent amounts paid for the real property. Below-market seller financing can raise a reported price, and personal property conveyed with a sale adds to it without adding to real property value. In extraction, anything left in the price falls to the land remainder.
Real-World Application
An appraiser verifying the sale of a vacation home learns that the seller carried a below-market note and that the furnishings transferred with the house. The appraiser adjusts for both before extracting land, so the land indication does not absorb either amount.
More Land/Site Questions
How should an appraiser account for a site's access to public sewer compared with competing sites that require septic systems?
Which fact, if supported by competitive-market evidence, most directly supports a unit-price premium for an otherwise comparable site?
A rectangular site's frontage is doubled while its depth is halved, keeping area constant. What is the likely value effect in a retail district?
A downtown site's zoning height limit is reduced from six stories to three. Buyers in this market had been paying for six-story development potential. What effect on land value is most supportable?
A zoning change increases permitted density from four to eight units per acre. What is the likely effect on site value?
Using the allocation method, market evidence supports a typical land-to-total-property-value ratio of 28% for similar improved properties in the subject’s location. An improved comparable sold for $825,000. What land (site) contribution is indicated by applying that ratio?
An appraiser is valuing a vacant site near a landfill. A similar vacant site that is not affected by the landfill sold for $480,000. Paired land sales indicate that proximity to the landfill lowers site prices by $70,000. No other adjustments apply. What is the indicated value of the subject site?
An appraiser is extracting site value from a $600,000 cash sale. The seller's records show an original construction cost of $250,000 and a depreciated book value of $110,000. The appraiser estimates current replacement cost new at $400,000 and accrued depreciation from all causes at $100,000. What is the indicated site value?
Three parcels assembled under single ownership (standard appraisal guidance assemblage) support separate as-is values of $290,000, $340,000, and $250,000. After assemblage for a higher-utility use, the combined site is valued at $1,050,000. Assemblage costs (demolition, legal, holding, and related) total $55,000. What is the indicated net plottage (plottage increment after assemblage costs)?
A comparable commercial site with 65 front feet sold for a cash-equivalent price of $585,000. Per standard appraisal guidance, sale price per front foot is a vacant-land unit of comparison when frontage is a primary value determinant. The subject site has 72 front feet and is otherwise similar. What indicated land value does the front-foot unit support before other adjustments?
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